Tuesday, August 4, 2009

Compassionate, but Inefficient

When an economist says that paying people to be unemployed raises the unemployment rate, laymen jump to the conclusion that economics has no compassion, and presumes that workers are fundamentally lazy. While that may be a nice debating strategy, that response is not based on logic.

Yes! It is compassionate to help people who lost their jobs, by forgiving their mortgage, forgiving their student loans, giving them a partial paycheck (unemployment insurance), etc. But let's stop pretending that such policies reduce the unemployment rate.

Sensible, hard working, people will understand the costs and benefits of their important decisions. Means-tested government benefits reduce the costs of being without a job. There are sensible people out there who will recognize that 2009 is not the time for them to, say, commute a long distance to work a job that's been offered to them but they do not enjoy. Sensible people will recognize that public policies have dramatically reduced the costs to them of searching further for the job they'd like, or making this the year they coach junior's baseball team, or do some work on their house, or spend time with an ailing parent, or refrain from "coming out of retirement," or take a trip.

We economists do not think making choices like those have anything to do with laziness. Many times, those choices make the best out of a bad situation.

Even workers who do not recognize some of the important costs and benefits at the outset may try unemployment for a while and start to notice the cushions that surround them. There may be a time and a place to be slavishly devoted to market work, but 2009 California is neither.

Yes, there are also people out there who would seek employment even if that work did little or nothing to enhance their living standards. For them, a parade of employer rejections is one of the few things that would keep them from being employed. I doubt this type of person is all that numerous -- but that's beside the point. As long as there are a number of people like I described above, the bad incentives our government has created will have an impact on the aggregate data -- reducing employment and raising unemployment.

To be clear, much of the unemployment rate spike and the employment collapse does NOT result from these bad public policies. For example, the housing collapse would put a lot of construction employees out of work regardless of what the government did. But public policy has made those bad employment numbers even worse.

6 comments:

Joseph said...

Casey,

Try being unemployed. See how you feel to know your health insurance will soon be up. How your feelings of self worth and value disappear. It is not great. Not at all. Try it sometime. Try feeling like a man when you are unable to feel that you can care for your family. That is the problem with your analysis...it ignores all of those benefits of working...the intangibles...the things that are hard to dollarize in the aggregate, but can mean a substantial amount to the individual.

Will said...

Joseph, how does increasing UI benefits decrease the effect of those intangibles?

Jason said...

You did not name a single layman claiming that unemployment insurance reduces unemployment.

Strawman-bashing?

rgorka said...

Jason: Consider yourself cited.

Barry said...

Well, we could get an idea if Casey is correct by looking at suicide rates (start with: http://washingtonindependent.com/94925/death-and-joblessness)

Question - has Casey ever been correct? I only know of his from his 'the economy collapsed due to a Democratic president' post.

Barry said...

Will said...

"Joseph, how does increasing UI benefits decrease the effect of those intangibles?"

If somebody has lost loved ones in a disaster, and is homeless, feeding and sheltering them doesn't reduce intangibles, either.